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Credit Insights

Monetary Largesse Lifts Credit Market

While the market as a whole appears to be driven by monetary policy as opposed to individual fundamental analysis, we advise investors to be cautious in selecting which bond offerings they participate in.

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Summer is over, the window to the new issue market has been thrown wide open, and the credit market is on fire. Portfolio managers continue to report receiving a flood of new money as funds flow into the fixed-income sector. Even with more than $17 billion of investment-grade bonds issued last week, fund investors still seem to have plenty of cash that needs to be put to work.

Credit spreads tightened 6 basis points in the Morningstar Corporate Bond Index as the average spread declined to +167 last week with the preponderance of tightening occurring after the European Central Bank announced its new Outright Monetary Transactions program Thursday morning. Credit spreads have returned to their tightest levels since August 2011 and are slightly tighter than the average credit spread over the past 12 years.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.